CBN imposes new spread limit in bid to increase liquidity

Central Bank of Nigeria introduced a new spread limit on interbank transactions on Monday, it said in a statement, in an attempt to boost liquidity in the currency market.

All interbank transactions will be subject to a maximum spread of 1 naira ($0.0033), the Central Bank of Nigeria (CBN) said. A year ago, the bank had said the naira would trade with no pre-determined spreads. The new rules take effect immediately, said the statement.

The move, announced along side a series of other new regulations, could help the bank improve liquidity in its troubled foreign exchange market, marred by a gap between the stronger official exchange rate and a weaker black market rate.

The CBN has tried to close that gap by pumping dollars into the market since February. In a separate statement, the bank said it had injected $190 million on Monday. That brings the total amount close to $5 billion, according to analyst estimates.

Monday’s injection included $100 million for wholesale, $50 million for small and medium enterprises and $40 million for business and travel allowances.

The Central Bank now operates at least seven exchange rates, including an official rate, one for Muslim pilgrims going to Saudi Arabia and a rate for foreign travel, school and medical fees.

In Monday’s statement, the CBN also said traders can buy hard currency from each other without its prior approval, which until now had been required.